Rents fall in April

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Yardi Matrix released its April 2020 report on the multifamily housing market. This report begins to reflect the rapid changes to the market that have been occurring since the breakout of the COVID-19 epidemic and the imposition of unprecedented measures to counter it.

Annual rent growth drops

While the usual annual pattern is for rents to rise in the spring during the “leasing season”, the nationwide average rent in April fell by $8 from its March level to $1465 per month. This is the largest monthly drop Yardi Matrix has ever recorded. However, on a year-over-year basis, the average rent was up by 1.6 percent, still positive, but about half its recent rate of increase.

For reference, the Bureau of Labor Statistics (BLS) reported that the all-items urban consumer price index (CPI-U) rose 0.3 percent on a year-over-year basis in April. The shelter portion of the CPI was up 2.6 percent in the last 12 months. The BLS also reported that average hourly earnings of all employees on private non-farm payrolls in April were up 6.9 percent over the last 12 months. Compared to March, average hours worked was up by 0.6 hours per week. On the other hand, the unemployment rate in April hit 14.7 percent, with non-farm payroll employment falling by 20.5 million during the month.

Phoenix and Seattle lead in rent growth

The Yardi Matrix report focuses on the 30 largest metro areas and ranks them both by average rent growth over the last 12 months and also by rent growth in two sub-classes of apartments. These are the “renter by necessity” (RBN) class and the “lifestyle” (renter by choice) class.

The report identifies major markets with the highest average annual rent growth as Phoenix (5.2 percent), Seattle (3.8 percent), Indianapolis (3.7 percent), Inland Empire (3.3 percent), and Sacramento (3.2 percent). All of these rates of growth are down from those recorded last month. Indianapolis moved into the top 5 metros for rent growth not by a surge in its rents but rather by its rents falling less sharply than those in other metros.

The major markets with the lowest average annual rent growth were Orlando (-0.4 percent), San Francisco (-0.2 percent), Denver (0.2 percent), Los Angeles (0.3 percent), and Chicago (0.4 percent).

The brave souls at Yardi Matrix also include a forecast of the rent change for the year in each of the major metros they track. It is notable that, in this report, the forecast has turned negative for 13 of the 30 metros. The metro now forecast to have the highest rate of rent growth in 2020 is Indianapolis with a forecast increase of 3.2 percent. Rounding out the top 5 are Tampa, Philadelphia, Kansas City and Twin Cities. At the bottom of the list are Las Vegas (-5.4 percent) and Atlanta, cities usually found at the other end of the list.

Houston once again edged out San Antonio as the metro having the lowest occupancy rate of the top 30, coming in with 92.3 percent. San Antonio’s occupancy rate was 92.5 percent. At the other end of the scale, the Twin Cities had the highest occupancy rate at 96.3 percent, followed by Boston at 96.1 percent. Occupancy was down slightly from its year-earlier level in all 30 of the metros tracked in the report but this was also true last month and so is likely more due to factors other than COVID-19.

Rents in the workforce housing (RBN) portion of the market again held up better in April than did the lifestyle portion of the market. Rents in the RBN portion of the market were down by 0.4 percent compared to a 0.7 percent decline seen in the lifestyle product class.

Assessing the impact of COVID-19

The impact of COVID-19 on the multifamily housing market is driven by the unemployment being left in its wake. So far, over 33 million jobs have been lost. The report assesses the industry categories most at risk to be leisure and hospitality, retail trade, and mining, logging and construction. It assesses the geographical regions most at risk to be Las Vegas, the southwest Florida coast and Orlando. In each of these regions, more than 40 percent of employment is in at-risk industries. These regions may recover more slowly from the COVID-19 driven downturn than the country as-a-whole.

The complete report discusses some of the smaller markets. It has more information about the larger markets including numbers on job growth, completions of new units and occupancy rates. It also includes charts showing the history of rent changes in 18 of the top 30 markets over the last 4 years. It can be found here.